What is physical distribution?

As e-commerce has grown in recent years, getting products to customers’ doorsteps efficiently and affordably has become a top priority for businesses. Consumers don’t just want brands to offer delivery; they also demand fast and reliable delivery options. Research from Uber in 2023 found that 75% of people expect brands to offer express delivery that arrives in 2 hours or less.

These high consumer expectations make it even more essential for businesses to create a seamless experience from checkout to a product’s arrival at its destination. For businesses, meeting those expectations involves thinking through a physical distribution strategy.

In this article, we’ll cover the main topics businesses need to know about physical distribution, including:

• What is physical distribution?
• Why is physical distribution important?
• The components of physical distribution
• What is an example of physical distribution?
• Streamline physical distribution with Uber Direct

Physical distribution is the process of getting finished products from a company’s distribution and fulfillment network to the end consumer.

Physical distribution often involves managing various supply chain components, including what’s called the first mile of delivery (moving products from a manufacturer to a distribution center), the middle mile (from a distribution center to a sorting center or store), and the last mile (from a sorting center or store to the end customer).

While businesses need to think through each stage of their physical distribution process, this article will focus specifically on the last mile and providing consumers with the fast, convenient delivery experience they expect.

For e-commerce orders, convenience is key, and getting physical distribution right—especially the last mile—is necessary to create a convenient customer experience. Developing an effective system for physical distribution can lead to several significant advantages, including:

• Increased sales. People don’t want to wait long for their orders. If the expected delivery date for an item is too far off, they may turn to a competitor instead. In our research, 44% of people said a company lost their business because it didn’t offer express delivery, and 72% said they're more likely to order from a company again if the service is offered.

• Reduced costs. Creating an efficient system for physical distribution can help you reduce costs and make your budget go further. Keeping only the products you need on hand and shipping them out fast when orders come in leads to lower storage costs. And devising a way to achieve shorter delivery distances for orders can cut your transportation costs. Plus, if you use a delivery solution that offers more express speeds (like same day), you can pass the cost of the service along to your customers if they’re willing to pay more for the expedited option.

• Higher customer satisfaction. A good physical distribution process improves order accuracy and delivery speed, which leads to happier customers. When they receive their packages in a timely manner with no issues, it helps you earn their loyalty. In our report, 90% of consumers said they feel valued as a customer after a positive delivery experience.

Creating a physical distribution system that works well for your business and your customers requires factoring a few main components into your overall strategy:

A big part of creating a seamless physical distribution process is making sure you have the right amount of inventory in the right place whenever orders come in. When you have too much stock, you’re stuck paying more storage costs for products you can’t move. When you have too little, you risk losing sales. And if your inventory is stored in a location that’s geographically distant from the customers placing orders, you’ll face higher shipping costs and longer shipping times.

You can help solve those problems by thinking strategically about inventory control and investing in the right resources. Inventory management software can automate the process of tracking inventory levels in different locations and assist in spotting trends, like which items are most popular in different geographic areas. Those insights can help you keep your stock at the right levels across locations, whether you’re shipping from a warehouse or your storefront.

Location is important in keeping physical distribution affordable and efficient. If your website analytics suggest that you generate a high volume of traffic and sales from customers outside the regions where you have a physical store presence, leveraging strategically placed warehouses or partnering with a third-party warehousing facility in those areas may help you manage delivery costs, reduce shipping times, and improve the customer experience.

Some businesses can get by without investing in warehouse space. If storing and shipping inventory directly from your store is working well enough for you—especially if you have a lot of stores spread throughout the regions you serve—you may not need to worry about warehousing. A ship-from-store model is particularly effective if your business has a small number of SKUs and you have a strong local customer base.

Once a customer places an order, you want a clear process to start fulfilling it efficiently. To accomplish this, the first step is to make sure all your online sales channels (including your website, branded app, and/or any third-party apps you work with) integrate seamlessly into your fulfillment process. That will help you ensure that each order is routed to the closest location where the item is in stock so staff there can start preparing it to ship.

The other big component of order processing is the delivery itself. Determine which delivery solutions you’ll use and how you’ll assign deliveries to them as the orders come in. The right tech can help automate some of this process:

• For customers who opt for standard delivery speeds, delivery management software can help automatically select the best available carrier for each delivery as orders come in based on factors like distance, pricing, and availability.

• For local express deliveries, you can work with a third-party delivery platform like Uber to fulfill the orders. Specifically, you might consider a white-label delivery solution like Uber Direct, which lets you offer on-demand delivery from your first-party sales channels. Integrating with Uber Direct will automate the process of connecting you to a courier for each local delivery request.

Getting orders out fast won’t impress customers much if the item doesn’t arrive in good condition. In a Power Reviews survey from November 2022, 81% of respondents said they returned an item bought online because it was damaged or defective. And shipping damage can cost you since you’ll generally have to swallow the expense of returns and replacements.

Proper packaging is essential to making sure your products arrive in good condition. This is especially important for fragile and high-value items, but prioritizing packaging for all products is smart. Below are a few good practices to implement.

• Clearly label fragile items.
• Stock boxes in various sizes. The right box size reduces the likelihood of damage in transit.
• Provide plenty of packing materials to fulfillment staff (such as bubble wrap, air bags, and packing peanuts).
• Invest in water-resistant packaging for products vulnerable to water damage.
• Use insulated packaging and/or ice packs for temperature-sensitive items.
• Seal items within the package. This prevents confusion or fault if something is missing. For example, if the bag seal is intact on arrival and the order is incomplete, it will signal to the consumer that the shipment was packaged incorrectly, rather than there being loss or theft.

Consider sending test shipments of your products with different types of packaging to confirm what works best to reduce damage. You’ll still have to cover the cost of broken items, but you can correct the issue before it affects a customer.

Last-mile delivery, the process of getting a product from your store or warehouse to its destination, is frequently one of the most challenging aspects of physical distribution. Companies have a few options for managing last-mile delivery effectively:

• Use traditional carriers. Traditional carriers like Fedex, UPS, and government-run mail services have the infrastructure to make deliveries at great distances and a variety of speeds. They’re often the best option for customers who are happy to wait a few days for a lower delivery cost, and for small and medium businesses (SMBs) that don’t have a broad physical footprint.

• Hire in-house delivery drivers. Employing your own fleet of delivery drivers gives you more control over the delivery process, but it comes at a high cost. In addition to salaries, you’ll need to cover related expenses like vehicles, gas, and insurance. And the number of deliveries your drivers can manage and how much territory they can realistically cover will likely be limited.

• Partner with a third-party delivery company. Third-party delivery platforms like Uber are a great option for customers who want their orders fast, don’t mind paying a bit more, and live relatively close to a store with the item in stock. Some third-party delivery companies offer white-label delivery, meaning you can integrate their technology into your owned sales channels and seamlessly use them to fulfill orders that arrive through your website or app.

• Work with local retailers. Partnering with businesses that have locations where your customers are is an innovative way to expand your reach without opening more stores. If they agree to carry your inventory, you can use local delivery options to get orders from the store to nearby customers’ homes. The juice company Pressed, for instance, has found success with this strategy. Through a combination of partnerships with local businesses and third-party delivery platforms for last-mile delivery, it has set up over 90 Pressed Posts that help the company offer fast delivery options to a wider range of customers.

You can also simplify transportation and logistics in some cases by giving customers other convenient options as well, such as:

• BOPIS (buy online, pick up in store). Many customers appreciate the ability to purchase products online and pick them up at a physical store location. That solves the last-mile problem for you while also giving customers the option to browse in person and possibly add more items to their order. Plus, it gives them the chance to see (and maybe test) items, which can reduce returns.

• Smart lockers. Businesses can install smart lockers in key spots around a city. Instead of getting every single order to a customer’s home, delivery drivers can bring multiple orders to a location that’s convenient for both the driver and (hopefully) the customer. Customers can then access their items from the secure locker by using a code. Smart lockers let you meet customers halfway in terms of convenience while simplifying the last-mile delivery problem.

At every stage of the physical distribution process, you want to think about the customer experience. For the most part, that means keeping the work involved in physical distribution behind the scenes. Customers don’t need to see how you manage inventory control or logistics. And if you do everything right, they don’t have to think about it at all.

But a few aspects of physical distribution should be more visible to customers. To deliver the best possible customer experience, you can emphasize a few elements:

• Accurate inventory listings. You don’t want customers learning that an item is out of stock after placing an order. Aim to keep your inventory listings current in real time to avoid confusion and disappointment.

• Fast shipping options. More than two-thirds (69%) of respondents in Uber’s research said they’d choose a business that offers express delivery over one that doesn’t. Offering on-demand delivery options helps you better meet customer expectations.

• Multiple shipping options. In addition to convenience, customers also expect flexibility regarding their shipping options. Offer the ability to choose from a range of speeds and prices, such as standard free shipping, next day for a minimal fee, and same day or scheduled (with a specified time frame) for a higher premium. By catering to a wide range of needs, you can instill confidence and reduce the likelihood of customers turning to another brand or marketplace that offers delivery on their terms.

• Accurate estimated times of arrival. Customers appreciate the transparency of knowing when to expect their orders. But accuracy is crucial here—if you tell customers it will come by Saturday and it shows up the following Tuesday, they’ll be disappointed.

• Real-time communication options. If customers have questions about an in-process order, aim to provide clear information on whom to contact, and do your best to ensure that they’ll receive a fast response.

• Real-time tracking information. In Uber’s research, 82% of consumers said they wish they could track orders better in real time, and 47% said the ability to track their order increases their trust in the retailer.